ABU DHABI: The UAE saw a 60% dip in sustainable sukuk issuance in 2024 compared wirh the previous year but still contributed 15 per cent of the global volume.
Despite the dip, the GCC region is expected to propel global sukuk issuance to between $190 billion and $200 billion in 2025, according to S&P Global Ratings.
Sukuk are Islamic financial instruments akin to bonds but structured to comply with Sharia principles. Unlike conventional bonds, sukuk do not involve interest payments; instead, they are asset-based and generate returns through shared profits or rentals from underlying assets.
Sustainable sukuk go a step further by focusing on funding environmentally and socially responsible projects. These include renewable energy, affordable housing, sustainable water management, and other initiatives aligned with global ESG (Environmental, Social, and Governance) goals.
The rise in sustainable sukuk reflects the growing demand for financial products that address climate change and promote inclusive development.
Sustainable sukuk trends
The total volume of sustainable sukuk issuance globally rose to $11.9 billion in 2024 from $11.4 billion in 2023. The Middle East accounted for 25-30 per cent of the total, with Saudi Arabia and the UAE being significant contributors.
S&P forecasts sustainable sukuk issuance to hover between $10 billion and $12 billion in 2025 unless there is a major push for net-zero policies or regulatory intervention in core Islamic finance countries.
Saudi Arabia led the sustainable sukuk market, contributing 38 per cent of the total issuance in 2024, supported primarily by local bank issuances. Meanwhile, the UAE’s decline highlights the need for accelerated climate transitions and regulatory incentives to boost sustainable finance.
“We expect to see an acceleration of issuance if and when there is an acceleration in the climate transition of GCC issuers and renewable energy targets, as well as regulators offering incentives to take the sustainable issuance route,” said Mohamed Damak, Head of Islamic Finance at S&P Global Ratings.
GCC drives foreign currency sukuk growth
Foreign currency-denominated sukuk issuance is also set to remain elevated in 2025, with contributions expected between $70 billion and $80 billion. This segment saw a 29 per cent rise to $72.7 billion in 2024, driven by increased activity from Saudi Arabia, Kuwait, Qatar, and Oman.
However, the UAE saw a marginal decline in foreign currency sukuk issuance in 2024 compared with the previous year. “We expect foreign currency-denominated issuance to remain strong in 2025, fueled by the high financing needs of Islamic finance countries due to economic diversification programs,” Damak said.
The GCC’s economic diversification efforts and high financing requirements are key drivers of sukuk issuance growth. Monetary easing is expected to continue in 2025, albeit at a slower pace, creating favorable conditions for issuers to tap into the market.
While geopolitical risks have yet to impact issuance, they could pose downside risks moving forward, Damak warned.
S&P also highlighted that the adoption of Standard 62 by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) will likely influence sukuk issuance in 2026 as market feedback continues to shape its implementation.
